Team 6 IRAC Mind Map - Walkovszky v. Carlton, 18 N.Y.2d 414, 276 N.Y.S.2d 585, 223 N.E.2d 6 (1966)

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Team 6 IRAC Mind Map - Walkovszky v. Carlton, 18 N.Y.2d 414, 276 N.Y.S.2d 585, 223 N.E.2d 6 (1966) by Mind Map: Team 6 IRAC Mind Map - Walkovszky v. Carlton, 18 N.Y.2d 414, 276 N.Y.S.2d 585, 223 N.E.2d 6 (1966)

1. Impact

1.1. 607 F.2d 582 - Gartner v. Snyder

1.1.1. The district court held that Snyder had inadequately capitalized Enterprises, disregarded its separate identity, and used it to a fraudulent end, and should therefore be personally liable for its breach. Snyder appealed the judgement issued in the Southern District of New York holding him personally liable for the breach by Snyder-Westerlind Enterprises, Inc. during a real estate transaction The court found "that the only evidence suggesting that Snyder used Enterprises' funds for personal matters is Snyder's admission at trial that his father is a horse buff and that three checks were drawn on Enterprises' account within one week in mid-1971 to pay for the care of horses Enterprises did not own." However, this transaction happened before the project began. Much like Walkovszky v. Carlton, the court found no personal interest and no foundation for piercing the corporate veil. Reversed the lower courts decision.

1.2. 138 B.R. 390 - In re Rave Communications, Inc.

1.2.1. "Chapter 7 trustee filed amended complaint against firms closely related to debtor, and officers and board members of the firms, to pierce the corporate veil and hold firms and officers and board members liable for all of debtor's debts, and to avoid allegedly fraudulent transfers. " "All defendants moved for dismissal for failure to plead charges of fraud with particularity. The Bankruptcy Court, Cornelius Blackshear, J., held that: (1) complaint satisfied particularity requirements for fraud claims, and (2) complaint sufficiently stated claim to litigate propriety of piercing corporate veil." The case Walkovszky v. Carlton, was referenced indirectly in determining to pierce the corporate veil. As this was a different matter than personal interest. Motion Denied

2. Influence

2.1. The Walkovszky decision influenced the New York State Insurance Department to increase the required insurance

2.1.1. It is a requirement of the New York Taxi and Limousine Commission that livery vehicles operating in New York City must maintain a minimum of $100,000/$300,000 of such coverage. [1]

3. Importance

3.1. The Appellant in Walkovszky v. Carlton, has a valid point. If the case had been decided in favor of Walkovszky, professionals that form limited liability companies would be justifiably concerned about not receiving adequate personal liability protection under the corporate veil. The outcome of this case reemphasizes the safety and security of a professionals' personal assets.

4. Conclusion

4.1. "The order of the Appellate Division should be reversed, with costs in this court and in the Appellate Division, the certified question answered in the negative and the order of the Supreme Court, Richmond County, reinstated, with leave to serve an amended complaint." The New York Court of Appeals refused to pierce the corporate veil due to undercapitalization alone. "There was no allegation that individual defendant was conducting such business in his individual capacity." Trial court decision reinstated.

5. Analysis / Application

5.1. Positions

5.1.1. John Walkovszky, Respondent (Plaintiff) Walkovsky asserts that he is able to hold the stockholders personally liable for damages because the corporate structures' sole purpose is to evade liability. Walkovsky claimed that Carlton's division of his businesses was a deliberate attempt to undercapitalize each business so that liability would be limited. Walkovsky claimed that the corporate structure was a deliberate attempt to defraud the public who might be injured by one of the taxis.

5.1.2. William Carlton, Appellant, et al., (Defendants) Defendants contend that in this situation where the minimum state insurance requirements were met, the court would be intruding into legislative domain by ignoring the corporate veil and holding the individual shareholder liable for unjust causes. Defendants "further contend that a decision holding him personally liable would discourage people from engaging in corporate enterprise." Defendants argue that the state's failure to set the minimum insurance higher than $10,000 per corporation indicates that the state thought this was sufficient insurance. The failure of the state legislature to increase the minimum insurance requirements indicates acceptance without protest.

5.2. Court Reasoning

5.2.1. The law permits "the incorporation of a business for the very purpose of enabling its proprietors to escape personal liability" However, there are situations where the shareholders may be held liable. If someone uses control of the corporation to further his own instead of the corporations business or acts in a fraudulent manner, he can be held personally liable for the corporation’s acts. Complaint barren of any "sufficiently particular[ized] statements" that the defendant Carlton and his associates are actually doing business in their individual capacities, shuttling their personal funds in and out of the corporations "without regard to formality and to suit their immediate convenience." The minimum insurance to be carried by taxi cabs is $10,000. The court noted that if this is deemed to be too low, that remedy would not lie with the courts but with the legislature. No evidence was provided that proved fraud. Carlton carried the required insurance, and it is not fraudulent to hold multiple corporations.

5.3. Interpretation of the Law

5.3.1. Corporate protection should not be removed just because the assets were insufficient to provide the damages sought by the plaintiff. To do so, would set a precedent putting other small businesses at risk.

6. Rule of Law

6.1. Through the doctrine of respondeat superior, a person can be held liable for the actions of a corporation if the corporation was formed for personal gain.

6.1.1. "Piercing the corporate veil" can be accomplished when it is shown that the corporation is being used to further personal interests instead of corporate interests.

7. Issue

7.1. Whether Carlton can be held personally liable for the injuries suffered by Walkovsky; i.e., can the corporate veil be pierced based on the facts at bar.

8. Facts

8.1. Parties

8.1.1. John Walkovszky, Respondent (Plaintiff)

8.1.2. William Carlton, Appellant, et al., (Defendants)

8.2. What Happened

8.2.1. Plaintiff Walkovszky was severely injured in NYC when he was hit by a taxicab owned by Seon Cab Coporation and operated by Marchese.

8.2.2. Carlton was a stockholder of Seon, which carried minimum automobile liability insurance required by law ($10,000) for an individual cab. He was also a stockholder of 10 different corporations, each with 2 cabs.

8.3. Procedural History

8.3.1. NY Court at Special Term (262 N.Y.2d 334); granted motion to dismiss - "failure to state a cause of action"

8.3.2. Appellate Division, by a divided vote, reversed, holding that a valid cause of action was sufficiently stated.

8.3.3. Court of Appeals of New York Argued September 26, 1966 Decided November 29, 1966

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